Cabot Emerging Markets Investor March 17, 2016
Paul Goodwin, Chief Analyst
WHAT TO DO NOW: The Cabot Emerging Markets Timer continues to give a buy signal, so we’re maintaining our strategy of increasing our exposure. Today, we are increasing our half position in SBGL to a full Buy.
Market Environment
U.S. markets, as represented by the S&P 500, have been strengthening since the middle of February, and the S&P has now climbed back atop its 200-day moving average. This is a positive development, and provides a constructive backdrop for the fortunes of emerging markets ADRs. The Fed’s back-down from a projected four rate increases this year to just two was welcome news to investors, and has definitely reduced tension in many minds.
The tone of emerging markets stocks has also improved, as both the iShares MSCI Emerging Markets ETF (EEM) and the Golden Dragon China ETF (PGJ) have accelerated their rates of advance. While we have yet to see either ETF regain its 200-day moving average, this new strength from Chinese stocks is a positive sign that investors are willing to take on a bit more risk and are looking to EM stocks for opportunities.
Earnings season for emerging market stocks is always a long process, as looser reporting requirements allow companies extra time to release their results. We now have reporting dates for two more of our stocks. YY.com (YY) will release Q4 and full-year results on Monday, March 21, after the close and Concord Medical Services (CCM) will report on Monday, March 28, also after the close.
The major indexes were all down during the morning session, but rallied in the afternoon to finish the day up less than a percent each. The Dow was strongest, rising 155 points (0.90%), the S&P 500 gained 13 points (0.66%), and the Nasdaq rose 11 points (0.23%). The iShares MSCI Emerging Markets ETF (EEM) enjoyed a strong day, gaining 73 cents (2.20%) to finish at 33.85.
Recommended Stocks
Concord Medical Services (CCM 4.9) has built a nice base in 2016, trading under resistance at 5 for most of the year. With earnings now definitely scheduled for March 28, the moment of truth may be approaching. We’ll keep CCM on the watch list until we see how investors like Q4 results and any guidance management may give.WATCH.
Credicorp (BAP 133)
enjoyed a great day today, powering ahead more than 5% to new highs while breaking through its short-term resistance at 130. BAP looks solid.BUY.
Ctrip.com (CTRP 42)
announced Q4 and full-year 2015 results yesterday, and the results were mixed. While Q4 revenue grew 50%, which was a bit above consensus estimates, revenue from several product lines came in at the low end of estimated ranges. The company issued guidance of 75% to 80% revenue growth for the first quarter, but some analysts felt that this was very low considering that it would include consolidated revenue from the Qunar merger. CTRP fell sharply at today’s open, but rallied steadily higher all day to finish down just fractionally. We will maintain our Buy a Half recommendation, but will monitor the aftershocks of the earnings report closely.BUY A HALF.
Grupo Financiero Galicia (GGAL 29)
scrubbed off three points from 31 in late February, just after we recommended it, to 28 on March 7. It has taken GGAL nearly two weeks to make back two of those points. We will keep the stock rated Buy a Half, as it is working on a nice flat base.BUY A HALF.
Seaspan (SSW 20)
took a little dive after its earnings report on March 7, but has rebounded with astonishing vigor in the past four days, moving out to its highest price since November 2014. There was no news to account for SSW’s monster upmove on more than three times average trading volume on March 14. But in an environment where low-risk returns are hard to come by, SSW and its highly visible revenue outlook (and 7.6% dividend yield) presents an attractive package. We’ll stay on Buy.BUY.
Sibanye Gold (SBGL 15)
got a boost along with all gold producers when the Fed sounded pretty dovish about the rest of the year. There’s no telling how long the rebound rally in gold will last, but SBGL is performing better than SPDR Gold Trust ETF (GLD), which tracks the spot price of gold. We will upgrade SBGL to a full Buy, but you should remember that it’s primarily a ride-along on the price of gold.BUY.
TAL Education (XRS 54)
has rallied nicely over the past six sessions, and is within a fraction of a point of its all-time highs. We’ll keep the Buy rating.BUY.
Telekom Indonesia (TLK 54)
has once again climbed to new all-time highs, continuing the rally that began last October. There’s no news on the company, and the stock’s advance is well ahead of iShares MSCI Indonesia Investable Market Index Fund (EIDO), which got moving much later than TLK. For now, the Buy a Half recommendation is appropriate.BUY A HALF.
Volaris (VLRS 21)
continues to consolidate its big February gains. The stock’s 25-day moving average is just catching up, and that may provide some energy for the next upmove. This ultra-low-cost airline is still adding institutional investors to its string of supporters. We’ll keep VLRS rated Buy.BUY.
YY.com (YY 57)
had a great day today, climbing back above its 50-day moving average and continuing its herky-jerky recovery from its free-fall on February 11. The big news is the announcement that YY.com will report earnings on March 21 (next Monday), after the market closes. That announcement will likely be a make-or-break event, and investors will be watching closely. Estimates are that the company will book revenue of just over $242 million for the quarter. The other critical number will be any guidance for 2016 earnings, which are now estimated at $4.32 per share. We’ll keep YY on the watch list at least until we see investors’ reaction to the report. WATCH.
Stock | Date Bought | Price Bought | Current Price | Profit | Rating | |
| Concord Medical Services (CCM) | — | — | 4.90 | — | Watch | |
| Credicorp (BAP) | 3/11/16 | 129 | 133 | 3% | Buy | |
| Ctrip.com (CTRP) | 2/26/16 | 42 | 42 | 0% | Buy a Half | |
| Grupo Financiero Galicia (GGAL) | 2/26/16 | 30 | 29 | -5% | Buy a Half | |
| Seaspan (SSW) | 6/22/12 | 17 | 20 | 13% | Buy | |
| Sibanye Gold (SBGL) | 3/4/16 | 14 | 15 | 3% | Buy | |
| TAL Education (XRS) | 12/18/15 | 48 | 54 | 11% | Buy | |
| Telekom Indonesia (TLK) | 3/4/16 | 52 | 54 | 3% | Buy a Half | |
| Volaris (VLRS) | 9/25/15 | 15 | 21 | 41% | Buy | |
| YY.com (YY) | — | — | 57 | — | Watch |